The downward trend at RVR

August 27, 2008
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, NAIROBI, August 12- Tired of the non-performing railway systems which had affected their economies because of inadequate transport facilities especially for bulk transportation, both the Ugandan and Kenyan governments agreed that it was time to privatise the line.

And so, the privatisation process of the 900 kilometers Kenya-Uganda railway line commenced in 2002 after the two governments sought a partner to transform the dilapidated networks into efficient, modern and reliable transport systems.

After a competitive bidding process, Rift Valley Railways consortium led by the South African investor, Sheltam Close, took over on November 1, 2006. Kenya Railways handed over all assets to RVR for a period of 25 years for cargo and five years for passenger services.
 
Sheltam remains the largest shareholder although its stake in the company has declined to 35 percent while TransCentury holds a 20 percent stake.

Others are the Centum Investment, Prime Fuels and Mirambo Limited and Babcock and Brown.
The consortium was charged with an enormous task of turning around the company into one of the best rail operators in Africa within five years and committed to invest $322 million in 25 years.

Granted, vast resources were needed if this dream was to be achieved, and RVR is said to have negotiated a Sh4.3 billion loan with the World Bank’s private arm, International Finance Corporation (IFC) and KfW of Germany to revamp the infrastructure.

First, the consortium embarked on a retrenchment exercise to reduce the employee burden at the Kenya Railways, and who were eating into the corporation’s profit margins.

Over 4, 000 workers were laid off almost immediately, and more are set to ‘go home’ soon as the company prepares to retain only 1,400 of the original 7,000.

Its formal performance evaluation was to be undertaken in June 2009.

But already, with no tangible benefits realised, the public as well as the governments, were getting agitated.

And so rumors started flying that the consortium was facing financial problems and people from all quarters including Kenyan MPs started demanding that the government cancel the 25-year concession contract with RVR.

These rumors were fueled by revelations that RVR had failed to invest in the modernisation of the railway services and was only trading on money generated from the assets it inherited from Kenya Railways.

Both the Kenya and Uganda governments were also rumored to want an exit from the concession agreement as it became clear that RVR was not making any headway.
 
But in its defense, RVR blamed its woes on the delay by the international lenders to disburse funds, adding that they needed realistic timelines to deliver on the agreement.

In May 2008, the management maintained that efforts to turnaround the rail service were firmly on course.
 
RVR Managing Director Roy Puffett explained that the firm had embarked on laying the foundation for a successful turnaround while engaging in routine daily operations.

When it became clear that no progress was being made and that the firm was not going to meet its targets, the management, on August 4 replaced Roy Puffet with Australian Kevin Whiteway and also created a post for an Executive Chairman.

People familiar with the management of the company say the Executive Chairman will be the one technically running the show and calling the shots.

The two governments could no longer turn a blind eye to the non-performance of the firm and so a few days later, Prime Minister Raila Odinga called a press conference and issued an ultimatum: RVR has until August 15 to submit a comprehensive investment plan to the two governments.

Odinga said shareholders in the railway transport would be required to inject a fresh capital of not less than Sh2.6 billion between August 31 and October 31.

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